Using Spatial Models for the Analysis of Financial Services Expansion
This CFSP Concept Note provides an introduction to the use of dynamic spatial competition models in simulating expansion decisions by two financial service providers. Dynamic spatial competition models offer a method for understanding geographic patterns of financial service provision over time. By comparing simulations to actual data for spatially distinct markets, we are able to identify how financial service providers make bank location and expansion decisions. The motivating factor behind location decisions can be profit maximization (as might be anticipated for commercial banks) or overall levels of financial access (as might be anticipated for government development banks). Using these techniques for analysis allows for the examination of location decisions of a government development bank and a commercial bank. Outcomes from various scenarios can then be utilized to determine the implications of location decisions for overall welfare and total financial access.